Indonesia’s Manufacturing Sector Shows Signs of Recovery

Indonesia’s manufacturing sector is displaying clear signs of recovery, driven by a sharp increase in imports of raw materials and capital goods. According to recent data from the Central Statistics Agency (BPS), the value of imported capital goods and raw materials in July 2025 has grown significantly compared to the previous year, suggesting that businesses are beginning to restock and ramp up production after a period of cautious inventory management.

This import growth is a strong indicator of renewed manufacturing activity, particularly in core sectors such as textiles, electronics, automotive, and machinery. The trend also aligns with Indonesia’s broader macroeconomic indicators, such as steady GDP growth, improving industrial utilization rates, and rising purchasing manager index (PMI) numbers.

This momentum suggests that the country is entering a new phase of industrial resilience, fueled not only by global trade normalization but also by domestic demand for consumer and industrial goods.

Rising Imports of Capital Goods: A Signal of Long-Term Investment

One of the most telling indicators of Indonesia’s manufacturing recovery is the rising import of capital goods. These goods, which include heavy machinery, electrical equipment, and tools used in production processes, are not intended for immediate consumption but rather long-term production use. Their increased presence indicates that manufacturers are planning for sustainable production growth.

The latest BPS data shows that capital goods imports reached nearly $2.9 billion in July 2025, representing a year-on-year increase of 12.7 percent. This upswing is in line with government projections and recent business sentiment surveys that show improving confidence among industrial players.

Increased investment in capital goods usually precedes employment growth and higher industrial output, both of which are essential to a full-scale manufacturing rebound. It also reflects strategic responses by businesses anticipating stronger demand ahead, not just domestically but also from export markets like the United States, Japan, and the EU.

Moreover, this import surge is happening amid global uncertainties, such as ongoing geopolitical tensions and potential interest rate changes in developed markets. This shows that Indonesia's manufacturers are preparing themselves to compete in a more robust and demanding environment.

Surging Raw Material Imports Reflect Rebuilding of Inventory and Production Plans

Another crucial component of this recovery is the import of raw materials. These goods are essential to various manufacturing processes, from chemicals and metals to plastic resins and textiles. In July 2025 alone, Indonesia imported raw materials worth over $13.2 billion, representing a 9.1 percent year-on-year increase.

This rebound suggests that local manufacturers are rebuilding inventories that were previously depleted due to global supply chain bottlenecks and fluctuating commodity prices in 2023–2024. The surge also indicates that production pipelines are being reactivated in anticipation of both domestic consumption and export fulfillment.

In sectors like automotive and electronics, where components rely heavily on imported materials, this trend is particularly pronounced. Domestic companies are also adapting to new sources of raw materials to mitigate supply chain risks and diversify their inputs.

For example, recent trade partnerships with South Korea and India have improved access to high-quality intermediate goods, while local government incentives have encouraged manufacturers to expand capacity. This combination of factors reflects a more resilient and diversified approach to industrial production planning in Indonesia.

Manufacturing Recovery Tied to Policy Support and Global Trade Flows

Indonesia’s manufacturing recovery is also tied closely to government initiatives aimed at revitalizing the industrial sector. Programs such as the Making Indonesia 4.0 roadmap and tax incentives for capital goods investment have encouraged businesses to modernize and expand.

In addition, Bank Indonesia’s accommodative interest rate stance and ongoing investment in infrastructure, including seaports and logistics hubs, are helping reduce production costs and improve competitiveness.

Global trade flows have also supported this recovery. Indonesia’s top exports—including palm oil, coal, electronics, and apparel—have benefited from recovering global demand, especially from neighboring ASEAN markets and key trading partners in East Asia.

Notably, the positive trade balance, coupled with healthy foreign direct investment (FDI) inflows, is giving manufacturers the financial confidence needed to reinvest in operations. In the first half of 2025, FDI in Indonesia’s manufacturing sector grew by 8.4 percent, with the majority flowing into the automotive, electronics, and pharmaceutical industries.

As a result, Indonesia’s manufacturing PMI rose to 52.8 in July 2025, up from 50.6 the previous month, signaling expansion for the third consecutive month. These figures reinforce the notion that the sector is gaining traction and gradually moving past the stagnation phase that followed the COVID-19 disruptions and the global inflation wave.

Challenges Remain, But the Outlook is Positive

Despite the positive momentum, challenges remain. Indonesia’s logistics and transport costs are still higher than regional competitors like Vietnam and Thailand. The country also faces structural issues such as labor productivity gaps and technology adoption barriers among small and medium-sized enterprises (SMEs).

Additionally, rising global commodity prices and exchange rate volatility could pose risks to the cost structure of imported materials. Still, industry leaders and analysts remain optimistic. Many believe that the current surge in raw materials and capital goods imports is not just a temporary blip, but the beginning of a more sustained manufacturing revival.

To maintain this trajectory, policy consistency, investment in vocational training, and digital transformation across manufacturing operations will be key. The government’s push for green industry practices and ESG adoption also provides opportunities for manufacturers to align with global sustainability trends, opening access to broader export markets.

Conclusion: Indonesia Poised for Industrial Renaissance

The July 2025 data paints a compelling picture of Indonesia’s manufacturing recovery. With rising imports of both raw materials and capital goods, the sector is showing early signs of resilience and future-oriented investment. While hurdles remain, the ongoing policy support, improving trade conditions, and industrial confidence all point toward a stronger, more diversified manufacturing landscape in the months ahead.

If this momentum continues, Indonesia may well be on the path to reestablishing itself as a key player in the global industrial ecosystem — not only as an exporter of commodities but as a hub of value-added manufacturing.